More top-tier Microsoft execs head to the exit

Two of Microsoft's top executives will leave the company, including its head of marketing and the former CEO of Skype, according to numerous reports on the Web, signaling more change at the company that's pivoting to become a devices and services seller.

Tami Reller, who until last July co-led the Windows division and now heads all marketing for the Redmond, Wash. company, and Tony Bates, currently the executive vice president in charge of business development and evangelism, will step down.

Bates came to Microsoft via the $8.5 billion acquisition of Skype in 2011, where he was its CEO.

Re/code, the website launched earlier this year by those who formerly ran the Wall Street Journal's All Things Digital, first reported the moves on Sunday, citing anonymous sources. The New York Times and Bloomberg followed today, also citing the boilerplate "people with knowledge of the matter."

The changes were not unexpected. Last month, Randy Ottinger of Kotter International, a Cambridge Mass. consultancy that specializes in leadership change and setting corporate strategy, predicted that Satya Nadella, the new CEO appointed Feb. 4, would craft his own team of top executives.

One of the first things on Nadella's to-do list, Ottinger said last month, was just that. "Who's on my leadership team, who is my cabinet? Who am I betting on to shape the future of the company?" Ottinger said, naming that work as No. 2 on Nadella's first-100-days list.

A new CEO, even one from inside a company, typically purges at least some of the senior executives, Ottinger said. Changing the guard will make the team Nadella's rather than have him accept people who were beholden to former CEO Steve Ballmer for their jobs.

"This was no surprise," agreed Patrick Moorhead, principal analyst with Moor Insights & Strategy, in a Monday interview. "Nadella will want people who are loyal to him. And I expect that he will pull people from [Microsoft's] Web or cloud businesses."

Nadella is familiar with those groups, having worked on the Bing team and, before his promotion, heading the Cloud and Enterprise group, the division responsible for some of the firm's fastest-growing services and most-profitable products.

According to the online reports, Reller will be replaced by Chris Capossela, a corporate vice president who oversees the consumer channels group, but who has held several marketing positions in Microsoft in his 22 years with the company. Capossela is to assume all advertising duties as well as marketing.

Mark Penn, the longtime political and media strategist who was hired by Microsoft in mid-2012, will drop advertising and focus on new product and investment strategies. Penn is best known for creating the "Scroogled" campaign that took shots at Google with a series of attack ads.

Bates' job will be given to Eric Rudder, who now leads the Advanced Strategy group.

It's unclear whether those appointments will be permanent.

According to several reports, Tami Reller and Tony Bates, both members of Microsoft's senior leadership team that report directly to CEO Satya Nadella, are on their way out the door. Julie Larson-Green will also lose her spot on the team when she takes a new job in the company. (Image: Microsoft.)

Reller and Bates have been cashing in Microsoft shares of late. Since August 1, 2013, Reller has sold 257,555 shares that put $8.8 million in her pocket, according to filings with the U.S. Securities and Exchange Commission (SEC). Bates was even more active, selling 351,196 shares worth $11.2 million since Sept. 3, 2013.

As of Monday, Reller controlled nearly 456,000 shares, with a paper value of $17.1 million; Bates had approximately 615,000, worth $23.2 million. In other words, neither will have to work if they don't want to.

"Bates makes a lot of sense," said Moorhead. "He was one of those in the running for the CEO before, he's been a CEO before. It's better for him to go do something different."

Reller was in the same boat, even though she wasn't named as a possible successor to Ballmer nearly as often as Bates. With a deep background in finance, she lost out to Any Hood when the company's chief financial officer job opened up last May.

Neither Reller nor Larson-Green got the top Windows job during the massive "One Microsoft" reorganization launched by Ballmer in mid-2013. The job instead went to Terry Myerson, formerly the head of Windows Phone but now in charge of all operating system development.

"It doesn't matter whether it's the top executives or the rank-and-file, if you feel snubbed or think that it's way too many years in the future to get to a point where you feel you should be at now, it makes a lot of sense to go somewhere else," said Moorhead. "[Reller] could easily go in at a higher level than she is now [at Microsoft] at a different company."

Moorhead said that although there wasn't enough evidence to claim that there was widespread housecleaning happening, he expects more changes.

"Microsoft can't afford a lot of waves," Moorhead said. "It's so time consuming. I'm expecting some nips and tucks in the beginning, followed by a major reorg, followed by more nips and tucks. Nadella will want to survey the situation for himself before he goes into any major reorganization move, so I do see this as the calm before the storm.

"Nadella wasn't brought in to do the status quo, or Ballmer would still be there," Moorhead said.

Microsoft can ill afford wasted time -- it's operating in a dramatically different environment than just three or four years ago, with slumping PC sales and a mobile strategy that has yet to pay off -- but Moorhead thought it would take a year for the dust to settle.

"It's tough when any technology company, any company for that matter, hires a new CEO, but professional organizations can work through it. Microsoft has a very professional leadership and management team, they invest in leadership and management development, and this is where it pays off," Moorhead added. "Executives get paid to keep people focused even at a time of change, and I'm sure Nadella will say, 'First and foremost, no dropped balls.'"

Microsoft will make the departures of Reller and Bates official on Tuesday.

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